The World in U.S. Courts: Summer 2015 - Personal Jurisdiction/Forum Non Conveniens | June.09.2015
Plaintiff Luv N Care, a U.S. corporation, alleged that it entered into distribution agreements with two Chinese companies, which then breached the agreements. The distribution agreements contained a forum selection clause under which the defendants consented to suit in Louisiana for claims. Luv N Care also sued Chinese individuals and business entities that it alleged were "alter egos" of the defendants, and therefore could be sued in Louisiana because they should be deemed to be parties to the same forum selection clauses.
The District Court agreed that companies found to be "alter egos" of one another were treated as the same entity for legal purposes, and identified 16 factors that Louisiana considers in making the determination that the independence of corporate entities should not be respected. The principal factors were: "(1) common ownership, directors and officers, employees, and offices; (2) unified control; (3) inadequate capitalization; (4) noncompliance with corporate formalities; (5) centralized accounting; (6) unclear allocation of profits and losses between corporations; (7) one corporation paying the salaries, expenses, or losses of another corporation; and (8) undocumented transfers of funds between entities." The Court noted that, even if certain of these factors favored a finding that multiple individuals and entities should be treated as one, if the parties had respected corporate formalities (factor (4) above) the balance might be tipped in against an "alter ego" finding.
The Court reviewed the record evidence on the question of the separateness of the defendant entities, including deposition testimony from the defendant's representatives which the court found contradictory. Because the evidence would require a determination of credibility, the Court denied the motion to dismiss on jurisdictional grounds, and preserved the issue for further proceedings.